Yesterday’s blog entry set forth the text of a comment I made in a recent discussion about safe withdrawal rates with researcher Wade Pfau (Wade says that he does not believe that the authors of the Trinity study meant to identify the safe withdrawal rate (SWR) in their safe withdrawal rate study and that the thousands of financial planners who for many years now have been saying that they did were mistaken to think that and that it’s just tough cookies for the millions of middle-class people who will likely be suffering failed retirements because of the errors made in the Old School SWR studies but not corrected to this day). Set forth below is the text of Wade’s comment in response to mine:
Rob, DRiP Guy kind of won me over with his discussion of scope vs. error at Bogleheads. Well, I think no one really knows the precise scope that the Trinity authors had in mind when they first formulated their study. But if their scope was only to look at how things worked out in the historical data, then there is no error. I mean, I’ve replicated their study and didn’t find errors in their calculations. So there is no error in that regard.
The error comes if people apply those success rates incorrectly to future retirements. I don’t know how the Trinity authors feel about the points you make regarding valuations. Perhaps they agree with DRiP Guy that valuations do not make an important difference, or at least that they do not provide a clear difference that can be correctly acted upon. But I still think there are other reasons to be worried about 4% (fees, international perspective, …) besides just the valuations issue.
This is where I wish the Trinity authors would be more vocal. But even so, the 4% rule is so ingrained into the national consciousness that even if they said something now it would have very little effect.
The duty is for others to come along and explain why they believe that the Trinity study does not provide the whole story about retirement planning in a forward looking manner.
That’s what you are doing. But in doing that, you don’t need to convince the Trinity authors to fix any errors. Just build on their earlier work. Which you did with your retirement evaluator.
As well, as the discussion at Bogleheads is now heading: the whole SWR debate is built on a rather artificial premise that people use a portfolio of risky assets to finance a clearly defined set of planned expenditures. In real life this isn’t how things work,